TIME VALUE OF MONEY HOMEWORK Pitt Company estimates it will need si 50,000 in iO
ID: 2514070 • Letter: T
Question
TIME VALUE OF MONEY HOMEWORK Pitt Company estimates it will need si 50,000 in iO years to expand its manufacturing facilities. A bank has agreed to pay Pitt 5% interest, compounded annually, if the company deposits the entire amount now needed to accumulate $150,000 in 10 years. How much money does Pitt need to deposit now? 1. Murphy Company deposited S 1,000 in the bank on January 1, 2016, earning 8% interest. Murphy Company withdraws the deposit plus accumulated interest on January 1, 2018. Compute the amount of money Murphy withdraws from the bank, assuming that interest is compounded 2. a. Annually b. Semiannually c. Quarterly 3. Steve Anders has decided to start saving for his son's college education by depositing $2,000 at the end of every year for 15 years. A bank has agreed to pay interest at the rte of 4% compounded annually. How much will Steve have in the bank immediately after his 15th deposit? Jordan Newburg has won the lottery and has four options for receiving her winnings 4. a. Receive S100,000 at the beginning of the current year b. Receive $108,000 at the end of the year c. d. Receive $20,000 at the end of each year for 8 years Receive S10,000 at the end of each year for 30 years Jordan can invest her winnings at an interest rate of 8% compounded annually at a major bank. Which of the payment options should Jordan choose?Explanation / Answer
1) Money to be deposit now = Desired Balance after 10 yrs*PVF(10 yrs, 5%)
= $150,000*0.61391325351 = $92,087
2) a) If interest is compounded annually
Interest rate = 8% Period = 2 years (from Jan 2016 to Dec 2017)
Amount of Money withdrawn by Murphy = $1,000*(1.08)2 = $1,000*1.1664 = $1,166
b) If interest is compounded semiannually
Interest Rate = 8%/2 = 4%, Periods = 4 semiannual periods
Amount of Money withdrawn by Murphy = $1,000*(1.04)4 = $1,000*1.16986 = $1,170
c) If interest is compounded quarterly
Interest Rate = 8%/4 = 2%, Periods = 8 quarters
Amount of Money withdrawn by Murphy = $1,000*(1.02)8= $1,000*1.17166 = $1,172
3) Amount in Bank after 15th deposit = Deposit at the end of year*FVAF(15 yrs, 4%)
= $2,000*20.02359 = $40,047
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